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Microfinance Part of a Bigger Picture
"Microloans" are all the rage these days, as more people embrace the theory that small loans to the poor can stamp out poverty everywhere.
But even one of the main proponents of microfinance — the founder of the Internet microloan site Kiva — told the Council on Foreign Relations that microfinance is "just one factor" in economic growth:
So my conclusion at this point is that microfinance is weakly associated with macroeconomic growth. It’s just one factor; it’s not necessarily going to cause a country’s GDP [gross domestic product] to increase. It has to be accompanied by things like good governance, infrastructure, transparency in economics, and all sorts of other things that microfinance cannot in and of itself to bring about.
Flannery also points out that loans of $50 or $100 cannot build roads or schools. Microfinance certainly has its place, but Flannery provides a nice reminder that it's not a cure-all.
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